The UK Supreme Court recently focused on the operation of a payment in lieu of notice (PILON) clause in a contract of employment. It decided that the PILON clause did not take effect until the employee had been clearly informed that the clause was being invoked and he had received the PILON. As a result the employee was entitled to a termination payment worth over €5 million more than he would have received had his employment ended when the employer intended.

Mr Geys, a former Managing Director of Société Generale, London Branch, was dismissed by the bank in November 2007. He was informed that his employment was being terminated with immediate effect and was escorted from the building. 20 days later the bank transferred a payment into his bank account. However, the bank did not inform the MD that it was transferring this payment. The MD assumed that the money was a termination payment and his solicitors wrote to the bank refuting that his employment had terminated. In January 2008, the bank informed the MD in writing that it had invoked the PILON clause in his employment contract and gave him a breakdown of the termination payment. The Supreme Court was asked to decide when the MD’s employment terminated.

The MD’s contract provided that the bank was entitled to terminate his employment with immediate effect by making a PILON. The bank argued that the MD’s employment had terminated either in November when he was told his employment was being terminated or in December when the money was transferred into his bank account. However, the Supreme Court decided that the MD’s employment was terminated in January when he was notified in writing that the bank had invoked the PILON clause to terminate his employment with immediate effect. It emphasised the importance of an employer telling its employee in clear terms that it is exercising its right to bring the contract to an end and how and when termination will take effect.

The fact that the MD’s employment was not effectively terminated until January 2008 rather than December 2007 resulted in the MD being entitled to a termination payment under his contract of €12.5 million rather than €7 million.

There is very little case-law on this area in Ireland and this UK case could be persuasive to Irish tribunals and Courts deciding a similar case. If an employer fails to properly implement termination provisions the employment relationship could inadvertently continue. The employer must inform the employee in clear and unambiguous terms that his/her employment is being terminated and pay as quickly as possible, any monies required to effect the termination.

Contributed by Alicia Compton and Ciara Ruane.

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